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Contributed by Bill Bonner
Publisher of: The Fleet Street Letter

FRIDAY, 7 JULY 2000 


Today:  Democracy

In Today's Daily Reckoning:

*** I'm on my way back to Baltimore this morning so this 
will be short.

*** Stocks moved without much direction or conviction 
yesterday. The Dow ended the day down 2 points. The S&P 500 
managed to rise 10 points.

*** But the Nasdaq seemed to get excited about something 
and rose 97 points. 

*** Mr. Bear is at the beach for a few weeks in the summer. 
This would probably be a good time to get rid of overpriced 
stocks, before he gets back on the job. He's likely to be 
tanned and fit...and ready for some serious work. 

*** High on your list of things to sell should be the Big 
Techs. These 'must own' stocks of the new era are probably 
the least likely - apart from the dopey dot.coms - to make 
an investor any money. 

*** William Fleckenstein cites the example of Micron. The 
company has been so popular that it is now selling at a 40% 
premium to GM, despite the fact that it has made no money 
in the last two years. GM has revenues more than 40 times 
those of Micron. Or compare it with Merrill Lynch which has 
a similar market cap. Where Micron had only $4 billion in 
sales in the last twelve months and a big zero of earnings 
- Merrill earned $2.5 billion. 

*** The Big Techs are overpriced because they are popular 
with TV commentators and investors who believe in the 
efficient market hypothesis. They think they don't have to 
study the stocks carefully - because the market has already 
factored all the relevant information into the price. But 
if investors don't pay attention to the important 
information...or know what it means...prices no longer 
reflect what stocks should sell for, but what investors 
want them to sell for. The market is efficient at 
separating fools from their money - even elegant at doing 
so - but not at pricing stocks.

*** Bonds fell back. The dollar rose. Gold fell 70 cents. 
And platinum rose $7.60.

*** Investors are still pumping money into mutual funds. 
Almost $17 billion of new money flowed into equity funds in 
May, down from the $34 billion of April, but more than the 
amount from May '99. It is a bad sign that this money can't 
seem to lift stock prices appreciably.

*** I'm glad poor old David Ogilvy is no longer paying a 
mortgage. The celebrated ad man and distant neighbor of 
mine in France shuffled off this mortal coil last fall, 
after suffering from Alzheimer's disease. The trouble with 
us copywriters is that it's hard to diagnose mental 
disorders. I mean, how can you tell?

*** But at least Ogilvy has been spared having to read 
those ads for a company called Archipelago. All I know 
about the company is that it has money to waste on silly 
ads. I spent quite a while trying to figure out the point 
of its amusing ads - which take up the first two pages of 
this week's Barrons. The ads break all Ogilvy's rules. Even 
the rules of grammar.

*** A recent survey of adult Americans revealed that 82% 
had never heard of the New Economy. 

* * * * * * * * * * Advertisement * * * * * * * * * * * *

5 Myths of the New Paradigm

1929 Again? Low inflation lulls investors into a false 
security. But there's a lurking danger. In 1929, one of the 
worst asset bubbles in history, consumer price inflation 
was near zero. That encouraged loose monetary policies and 
fed the bubble. Truckloads of easy credit money are being 
dumped into the stock market today. And most investors are 
clueless concerning the dangers. Could another Depression 
be coming? Read the 5 Myths of the New Paradigm... free.
* * * * * * * * * * * * * * * * * * * * * * * * * * * * * 


Thank God for the French. At a recent meeting of the 
world's most high minded public servants, the French 
refused to go along with the gag.

Madeleine Albright and the American delegation were 
shocked. They didn't expect any resistance to the idea that 
democracy should be promoted worldwide as panacea for any 
and all political ailments. 

But the French delegates, by virtue of their sheer gallic 
contrariness, stumbled upon an insight. Not so fast, they 
said: "You can't impose democratic institutions," on 
countries that are not ready for them, they said. 
"Democracy must arise naturally among people, not be forced 
upon them."

Democracy is misunderstood by almost everyone. It is used, 
loosely, to describe the gradualist, consensual political 
systems of countries such as the U.S. The word describes 
the complex machinery of politics - in which there is such 
broad participation by so many interest groups and so many 
different checks and balances in the system, that extreme 
positions are hard to maintain and radical changes are very 
difficult to make. The machinery of the system tends to 
favor moderation and centrist positions. We still become 
slaves of the state, but little by little. So little, we 
hardly notice.

Behind all the committees, special interest groups, 
political parties, and bureaucracies there is also the more 
literal aspect of democracy - the ballot box and the awful 
arithmetic of democracy. The average piddling regulation is 
of no concern to the average voter. The average 
pettifogging bureaucrat is no nuisance to him. Nor is he 
the one who pays his salary; the average dollar does not 
come from the average voter. 

The arithmetic gives the whole system a bias against the 
very thing it is supposed to protect: liberty. The voter, 
through the ballot box, has the power to exploit Pareto's 
Law. Eighty percent of the people typically own 20% of the 
wealth. The other 80% of the people own the other 20%. So, 
the majority uses the ballot box to take wealth away from 
those who have it and give it to themselves. The rich are 

Ultimately, as Phil Burnham wrote in the Financial Post in 
April, reprised by Jim Davidson in Strategic Investment:

"[T]he gift that government bestows on the rich by not 
killing them and selling of their bodies for parts is 
another tax expenditure of billions of dollars that could 
otherwise be used to create jobs for the poor."

Democracy gives us all an interest in the government. As 
Hillary Clinton put it, "the government is all of us." The 
government, grown immensely powerful on the logic of 
democratic arithmetic, demands all that we have and all 
that we are in return. Anything that we are allowed to keep 
is considered a "tax expenditure." Even body parts. 

Without the vote, we would naturally distrust our rulers. 
Throughout most of history, kings, emperors and local 
potentates ruled. It was difficult for them to impose high 
rates of taxation. The population would revolt. The 
American colonists revolted against England over tax rates 
of less than 3% and trade restrictions that seem trivial in 
comparison to the multitude of constraints and regulations 
under which the average American toils today. But democracy 
gives the would-be revolutionary a stake in the system. He 
can now sit at the king's table and enjoy the bounty of the 
tax farmers too.

The history of the last two hundred years in America is a 
history of the spread of democracy. The first people to 
vote were the rich landowners. But as the franchise 
broadened, the fatal flaw in the system, logical 
consequences of democratic arithmetic, began to assert 
themselves. As more and more people voted, the bigger and 
more oppressive government power became.

People now understand how the system works. They know that 
the system has a mind of its own. As a consequence, they no 
longer see the point of voting! Fewer than one voter in 4 
turned up to cast a ballot in Alabama's presidential 
primary. In New Mexico it was less than 30%. 

The ruling class is worried. Is the trend of the last two 
centuries finally coming to a close?

As always...more to come

Bill Bonner
About The Daily Reckoning:
The Daily Reckoning... "more sense in one e-mail than a month of CNBC."  That's what readers are saying about The Daily Reckoning.

Bill Bonner, recognized internationally as a brilliant writer, entrepreneur
and publisher of The Fleet Street Letter, offers you his daily market
commentary absolutely FREE. For the first time, outsiders are getting a peek into his powerful and profitable investment insights. Bill's practical contrarian advice empowers even average investors to protect their hard-earned wealth and achieve amazing gains.

Bonner writes his email letter from Paris, France, each morning --
describing the wacky, wonderful world of investment, politics and everything remotely related. Irreverent. Sharp. Honest. Thoroughly, unabashedly contrarian. It's also among the fastest growing e-letter on the Internet.  It's a brand new service... but it has a distinguished history..

For nearly 62 year, The Fleet Street Letter, the oldest investment
advisory letter in the English language has consistently delivered
invaluable economic and political foresights to savvy investors. Current readers regularly enjoy impressive investment gains even as the market falters. Here's more from his online readers...

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investment philosophy, "buy high and sell low." However, that has changed since I started religiously reading DR... I credit this reversal of fortune directly to The Daily Reckoning"

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Last modified: April 02, 2001

Published By Tulips and Bears LLC